PC’s duty blend may leave foreign wine makers with Customs hangover

LOWER THAN WTO-COMMITTED DUTY GIVES LEEWAY TO BALANCE REMOVAL OF ADDITIONAL LEVIES

INDIAN winemakers can raise a toast to this. Prices of foreign wines may actually go up even as the government plans to do away with additional import duties on wines and spirits that have been disputed by the EU and the US at the multilateral trade forum. The finance ministry is set to take advantage of the fact that the present level of Customs duty on wines is lower than the maximum level committed to by India at the World Trade Organization (WTO). If the finance ministry chooses to increase Customs duties to the bound or committed levels while replacing additional duties with state levies, the net effect may be an increase in prices of imported wines in some states.

While the move may appear foolproof on paper, legal experts say it too can be challenged at the WTO. According to legal consultant Karnika Seth, if taxes result in a manifold increase in prices of imported liquor, there is a ground for challenging it at the WTO. “This has already become a burning issue,” Ms Seth warned.

Officials say the move may be necessary to protect the domestic wine industry that is in its nascent stage and holds a lot of potential. There is, however, no scope to extend similar protection to domestic producers of spirits such as whisky, rum and vodka, as the applied Customs duties on spirits is equal to the WTO bound rate.

Speaking to ET, commerce ministry officials said while the Customs duties on wines and spirits had been bound at 150% at the WTO, the applied levels of duty on wines is just 100%. “The Customs duty on wines can be increased by another 50% without flouting our WTO commitments. As a lowering of protection at this stage could hurt our domestic wine producers, the government is considering increasing Customs duties to mitigate the effects of removing additional Customs duties,” an official said.

The EU and the US have dragged India to the WTO for imposing an aggregate duty (Customs plus additional duties) on wines and spirits at levels much higher than the bound rate of 150%. The aggregate duty level resulting from the application of the basic Customs duty, the additional duty and the extra additional duty ranges from 177.33% to 264% for wines. For spirits, it ranges from 252.22% to 550%.

India has decided to do away with the additional and extra additional duties and, instead, allow states to impose local levies on imported liquor equivalent to taxes imposed on domestic liquor. “This will be well within the WTO norms as it would amount to extending national treatment to foreign liquor,” the official said. As the local taxes levied are lower than the existing additional duties in most states, it would amount to lowering of prices of imported alcohol across the country, especially in Delhi, Punjab and Mumbai.

The wine industry, however, has been requesting the government not to drop the level of protection against wine imports for some time. Agriculture minister Sharad Pawar too is strongly pushing the cause of domestic wine producers, many of them based in his state, Maharashtra. The finance ministry will soon take a call on whether it would respond to the demands by increasing Customs duties. The domestic wine industry has just started to find its feet with demand growing 25-30% every year, more than twice the growth in demand for other spirits such as beer, whisky and rum. Imports account for 15% of the total wine consumption in the country.